Option Investor

Daily Newsletter, Saturday, 5/16/2015

Table of Contents

  1. Market Wrap
  2. New Plays
  3. In Play Updates and Reviews

Market Wrap

No Harm, No Foul

by Jim Brown

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The indexes broke out on Thursday and the lack of follow through on Friday was frustrating but it was not a problem. The indexes hugged the flat line and gave back very little to profit taking. It appears that investors are expecting a continued rally next week but were a little hesitant to add to positions ahead of the weekend.

Market Statistics

The lack of profit taking was even more positive after the flurry of bad economic data out on Friday. Consumer sentiment for May plunged -7.3 points to 88.6 and the largest decline in two years, a six month low and the biggest miss of expectations (95.9) on record. The main drivers were deterioration in household finances, rising fuel prices and additional pessimism over future economic conditions.

The present conditions component declined from 107.0 to 99.8 and the expectations component fell from 88.8 to 81.5. Only 39% of respondents said their personal finances are better now and that was down from 47% in April. Along the same topic the number of respondents saying their finances were worse rose +5% to 32%. Those that felt business conditions were better than in 2014 declined from 63% to 54%.

Consumers who feel their finances are deteriorating and economic conditions are worsening are not big spenders. This is a forecast of what retail sales will look like for May.

Industrial production for April declined -0.3% compared to -0.6% in March. Consensus estimates were for a rise of +0.1%. Capacity utilization declined to 78.2% and the lowest level in a year. On the bright side auto production rose +1.3%. However, outside of the auto sector production declined on average about -0.1%. Business equipment production declined -0.4%. Industrial production in the oil and gas sector fell -14.5% after a -17.7% decline in March. Inventories rose sharply in Q1 and final demand is slowing. That does not bode well for Q2-GDP.

The NY Empire State Manufacturing Survey for May came in at +3.1 but well under consensus of +5.0. That was still better than the -1.2 headline number in April. New orders rebounded out of the April contraction at -6.0 to positive territory at 3.9. Backorders remained deep in contraction at -11.5 and only fractionally better than the -11.7 the prior month.

The average workweek component declined -2.1 and only marginally better than the -4.3 in April. This was the 7th decline in the last 8 months. The employment component declined from 9.6 to 5.2 and well off the 18.6 high in March. Capital expenditure plans are plunging with a drop to 15.6 from the 32.6 high in February and the 24.5 print in April. Inventories rose from 2.1 to 7.3 and this means less need to increase production in the future.

Pessimism was rampant in the report with producer expectations falling to the lowest level in 2015.

Lastly the Internet E-Commerce sales for Q1 rose from $77.6 billion in Q4 to $80.3 billion in Q2. That was up +$10.2 billion from Q1-2014. E-Commerce sales are now 7.0% of all retail sales, up from 6.6% in Q4.

The calendar for next week is headlined by the FOMC minutes and the Philly Fed Survey. The FOMC minutes are going to be critical because the economy was weakening and Yellen wants to raise rates in June. Understanding the debate between the FOMC members will be critical in forecasting the future for rate hikes. The economic reports are still weakening and analysts are now expecting the first hike in either September or December with some not expecting a hike until 2016. If the minutes conflict with this view the market could have a temper tantrum.

The Philly Fed Survey is seen as a proxy for the national ISM two weeks later. The expectations are for a slight gain from 7.5 to 8.5 on the headline number. With manufacturing weak in the various regional reports this could produce a negative surprise.

We will also get a lot of reports in the housing sector and this is critical since we are in the most active part of the year for sales. Any weakness in those numbers could be market negative.

The Consumer Price Index on Friday will also be key since the Producer Price Index last week declined -0.4% compared to +0.2% in March. The goods component declined -0.7% from a rise of +0.3% the prior month. This is a significant decline in inflation and a corresponding decline in the consumer price index would be very negative for a Fed that wants to raise rates.

The forecast for the next revision of the Q1 GDP has now declined to -0.8%, down from -0.4% the prior week and +0.25% in the last formal estimate from the BEA. Q2 estimates are declining as well and will be revised after the Residential Construction numbers on Tuesday.

Two new split announcements were added to the stock split calendar last week. China Life (LFC) announced a 3:1 split and CF Industries (CF) announced a 5:1 split. We still have three weeks to go before Netflix announces the split ratio and dates on what could be a 10:1 split. Shareholders will approve the additional shares on June 9th and the company will then announce the particulars.

The stock split calendar is online at this Link and is updated as events are announced.

El Pollo Loco (LOCO), fresh from its recent IPO, disappointed investors with its earnings report. Earnings of 18 cents beat by a penny and revenue of $90.4 million beat estimates for $88 million. Same store sales rose +5.1%. However, despite the good news for Q1 they guided for full year earnings of 67-71 cents and analysts were already expecting 70 cents. They predicted same store sales to decline to +3 to +5% in Q2. LOCO IPOed at $15 last summer and rallied almost immediately to $41. The bloom faded in November when shares declined to $20. Expectations improved and shares closed at $29 on Thursday before the earnings. After earnings shares declined -15% to close at $24.70. Several analysts said this was an attractive entry point for investors willing to hold for the long term.

Dillard's (DDS) shares declined -7% after reporting earnings of $2.66 compared to estimates for $2.78. Revenue of $1.55 billion also missed estimates for $1.61 billion due to weakness in home and furniture categories. Same store sales declined -1.0% compared to estimates for +1.7%. Inventory levels also rose unexpectedly but the company said they were still manageable.

King Digital (KING) reported earnings of 61 cents and easily beat estimates of 53 cents. Revenue also beat. However, shares were crushed at the open because of a guidance warning on stronger dollar issue and a lack of new games until late in 2015. Shares declined about 14% at the open but rebounded throughout the day to close fractionally positive.

Ocular Therapeutix (OCUL) reported a loss of 31 cents but the shares rallied +20% after the company said it was submitting a New Drug Application (NDA) for Dextenza for the treatment of post surgical ocular pain. They also updated investors on the status of its drug pipeline for several drugs dealing with the eye. Investors loved it and shares exploded higher despite the earnings loss.

The earnings cycle is fading fast. However, there are some big names next week. These are the last of the blue chips to report. Two Dow components report on Tuesday with Home Depot and Walmart. Hewlett Packard ends the blue chip cycle on Thursday.

Casey's General Stores (CASY) exploded higher after the company reported same store sales for April. Food and fountain sales rose +14% and general merchandise +9.9%. Fuel gallons sold rose +4% and margins were better than their target of 15.3 cents per gallon. Casey's operates convenience stores in 14 Midwestern states with a selection of food, tobacco, health and beauty aids, automotive products and other nonfood items. They had 1,808 stores at the end of the quarter. Sidoti upgraded them from hold to buy. Shares rallied +9% on the news.

Avis (CAR) rallied +10% after Hertz (HTZ) said it would close 200 non-airport locations in the U.S. or about 5% of that store type and 1% of the overall total. Hertz also said it was going to raise rates at Hertz, Dollar and Thrifty rental locations. Hikes will take effect in the middle of June and they expect no problems with customers due to the shrinking supply of locations in the overall industry. Car rental companies have been hurt by thousands of cars that went unrented as the industry contracted. Hertz shares only rose +5% but Avis shares spiked hard on expectations they would benefit from the Hertz cutbacks.

Chicago Bridge and Iron (CBI) shares rallied +8% after Anadarko Petroleum (APC) named them as the construction firm to engineer, procure and construct their $15 billion LNG facility in Mozambique. The Area 1 prospect off the shore of Mozambique could hold as much as 75 trillion cubic feet of natural gas. That is enough to power the entire U.S. residential market for 15 years. Anadarko sold 10% of its interest in the field for $2.64 billion in 2014. The company still owns 26.5% of the field along with Spain's ENI. When the field is developed it will be in the top 3 producers in the world. In a 13F SEC filing on Friday David Einhorn opened a new position on CBI of 2.9 million shares.

Keurig Green Mountain (GMCR) crashed for the second time in a week when the analyst update of its new product line failed to impress. The new Kold beverage dispenser for cold drinks came in a year later than planned and at a much higher price point. The Kold dispenser will retail for $299 to $369 and it will only be sold online by Keurig until 2016. The drink dispenser will provide carbonated drinks, juices, sport drinks and teas. The machine will dispense Coke and Dr Pepper products we well as Keurig's own branded sodas. When you consider the equivalent Sodastream dispenser sells for about $99 and has struggled to gain a foothold with consumers the Kold device at three times the price could be in trouble.

Keurig also said it was bringing back its old coffee brewers that use the standard K-cups after consumers dumped the new machines that required only Keurig branded cups. Other brands would be refused by the machines and consumers immediately complained and older versions were hot commodities on Ebay. With Keurig bringing back the older machines that brew from any K-cup they are surrendering to consumer demands. I am sure the company thought it was a cute idea to require only their brands of coffee but the idea failed miserably. Odds are good the Kold will also fail. Shares fell another -8% on the news.

Netflix (NFLX) shares exploded past the $600 level on the potential for it to expand into China. Netflix is in talks with Jack Ma's Wasu Media Holdings and other potential partners to enter the Chinese market. The company is trying to find a vendor as a partner that already has licenses for content on all devices including mobile phones, computers and set-top boxes. The company had previously said it was exploring a "modest" entry into the Chinese market. The problem with China is that consumers are used to watching entertainment for free that is either supported by ads or pirated. Jack Ma paid $1.05 billion for a 20% stake in Wasu Media. The news that Netflix was possibly teaming with Jack Ma powered the stock higher. Netflix has said it will split its stock in June after shareholders approve the new shares at the June 9th meeting. We don't know the split ratio yet but they are asking for enough new shares to split up to 10:1.

While on the topic of Jack Ma, Alibaba (BABA) was sued in Manhattan by Gucci, Yves Saint Laurent and other brands for making it possible for counterfeiters to sell their products worldwide. The suit alleges that Alibaba had conspired to manufacturer, offer for sale and traffic in counterfeit products bearing their trademarks without their permission. The suit is asking for damages and an injunction for alleged violations of trademark and racketeering laws.

It has been known for years that the Taobao online marketplace was notorious for selling fakes. The U.S. Trade Representative had Taobao on its list of "notorious markets" for years although it removed the site in 2012. A typical counterfeit listing used as an example listed Gucci bags for $5 in lots of 2,000 that would sell retail for $795 each if they were genuine. The suit claims that Alibaba allowed thousands of counterfeit listings to continue even after the trademark holders expressly informed Alibaba of the fake listings. The suit seeks a court order that prevents Alibaba from hosting listings that are counterfeit and would include a penalty per item that is sold.

Dan Loeb dumped his 10 million share position in BABA and John Paulson sold its 1.93 million share position according to 13F filings this week.

Berkshire Hathaway (BRK.B) said in its quarterly SEC filing that it added to Berkshire's position in Precision Cast Parts (PCP). The fund increased its position by 50% to 4.2 million shares. At today's prices that is just under $1 billion compared to the PCP market cap at $31 billion. On Thursday PCP reported earnings of $2.94 that missed estimates for $2.97. PCP manufactures industrial gas turbines and commercial airplane parts. They are also a big supplier to the energy sector. The company said they expect weakness in the energy sector to continue through the end of 2015. PCP said it faced "significant challenges" in the oil and gas and pipe markets in the quarter. Shares rallied +4% on the Berkshire news.

Oil prices rose +$.54 for the week to end at $59.96 after a sharp decline to $58.43 at the open. This was the 9th consecutive week of gains and a record. That has not been done before. The high for the week was $61.85 after inventories declined another -2.2 million barrels. Distillate inventories declined -2.5 million and gasoline inventories declined -1.1 million. The decline in refined products came in spite of 20.65 million barrels being supplied by refiners. That was the high for the year. U.S. oil production rose slightly by +5,000 barrels to 9.374 mbpd but that is still well below the peak of 9.44 mbpd back on the week of March 27th.

Baker Hughes (BHI) said the active rig count declined by -6 rigs to 888 with oil rigs declining by -8 to 660 and gas rigs rising by +2 to 223. That was the smallest decline since December with the total rigs now down -973 and oil rigs down -949 or -59%. Offshore rigs were flat at 34, down -23 from the highs. Rigs in the Bakken declined -1 to 79. Permian rigs declined -3 to 233. Eagle Ford gained +1 rig to 87.

The slowing decline in the rig counts suggests producers are starting to become more confident in the future. In the Q1 earnings most producers planned to continue cutting rigs through June but the rate of decline suggests we are pretty close to the lows. We are only 22 rigs above the financial crisis low in July 2009. I seriously doubt we will see the same rebound we saw in 2010.


Friday was option expiration but volume was very close to the lowest for the week. Monday's volume was 5.638 billion and Friday was 5.687 billion. That is a huge lack of participation in the market. An expiration Friday should be significantly higher than that. Also, Thursday's "breakout" came on a very weak 6.0 billion shares showing very little conviction or participation.

Some of the reason for that rally came from comments from Mario Draghi on ending QE early. Some analysts had pointed to the rebound in the European markets and economic numbers as proof QE had worked and maybe Draghi would end QE soon to avoid overheating. In an interview Draghi said "After almost 7 years of a debilitating sequence of crises, firms and households are very hesitant to take on economic risk. For this reason quite some time is needed before we can declare success, and our monetary policy stimulus will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis."

Apparently he is committed to his 1.1 trillion euro target "in full" because it will take time for the benefits to spread to the wider economy. He said that the QE program was helping countries with large debt burdens because it reduced their borrowing costs. "To that effect, we will implement in full our purchase program as announced and, in any case, until we see a sustained adjustment in the path of inflation." To summarize his comments, "Party on!"

When taken in perspective the Draghi comments committing to the 1.1 trillion euro QE should have spiked the U.S. markets even higher and it didn't. Why not? I suspect U.S. investors are simply glazed over to the overseas factors and they are continually bombarded with comments about the U.S. markets being overvalued. More than $90 billion left U.S. equities in Q1 to invest in overseas markets. Many of those markets are up 15-17% year to date and the S&P is only up +3%. We are the slow and stodgy market and overseas markets are hot and sexy so far this year.

One thing the Draghi comments did do was to send our treasury yields a lot lower. The ten-year treasury hit 2.335% on Tuesday. On Friday alone the yield declined -4.37% to close at 2.14%. That is a massive decline but suddenly treasuries around the world were back in favor. The weak economics in the U.S. contributed to the strength in the ten-year because it kicked estimates for the timing of the first rate hike well down the road.

The rise in treasuries and drop in yields has been accompanied by rising markets in the recent past. Rising yields meant falling equities. That trend did not carry over into Friday when stocks were weak.

It all boils down to volume. That is a weapon of the bulls and apparently they are out of ammo. There is a lack of interest in the market that translates into a lack of conviction. Without volume and conviction it is difficult to keep any rally moving.

The AAII Investor Sentiment survey spent its fifth consecutive week with neutral sentiment holding over 45%. That is another new record. Both bullish and bearish sentiment declined with neutral rising nearly 1%.

The S&P finally closed at a new high on Thursday and managed to squeeze by with a minor +1.6 point gain on Friday to another new high. The experts on TV were quick to say the lack of follow through was simply fear of the weekend and next week would be different. I really hope they are right. A continued move higher on the S&P would hit resistance around 2160 and that is a good 40 point move. That could excite the fence sitters and drag them into the market. Nobody likes to see a market run away from them.

We built decent support at 2100, 2085 and 2070 over the last two weeks so any profit taking does not have to go far.

The percentage of S&P stocks over their 50-day average rose to 63% last week to break a two month decline. However, as you can see in the chart that is still well below the 80+ percentage levels of prior rallies. While the uptick is encouraging it has a long way to go.

The Dow is closing in on the 18,288 high from March with a close at 18,272 on Friday. There are two Dow components reporting on Tuesday and one should be positive (HD) and the other negative (WMT). Anticipation of those reports could keep a lid on Monday's markets unless Europe explodes higher and carries the U.S. markets higher as well. Dow component Nike will respond to Foot Locker earnings but those are not until Friday.

Personally I would love to be out of this volatility range we have been in since the new high back in March. This is nearly impossible to trade and that is probably why so many investors are sitting on the sidelines.

If the Dow actually breaks out to a new high on decent volume and HOLDS it then investor interest should increase. Support from Tue/Wed is 18,050 and that would require a -222 decline to retest. That could be the kiss of death if it happened early in the week. Everyone that did participate in the gains last week would probably bail out on a decline of that magnitude and we would be right back in the congestion range of the prior two months. This is the week that a real move higher needs to appear or we could be languishing at lower levels for the rest of the summer.

The fly in the rally soup is the underperformance of the Dow Transports ($TRAN). While it has faithfully held the support at 8600 the rebounds have been lackluster. The transports are being weighed down by oil prices. Eventually, over the next several weeks oil prices should move higher simply because of rising summer demand, decreasing inventories and the slow erosion of U.S. production. The EIA said production could decline -86,000 bpd by the end of June. That would be significant and prices would reflect it. I believe the transports are going to break that 8600 level and move lower. When that does happen it will drag the Dow lower.

Low oil prices should have been boosting earnings at the trucking companies and airlines but the impact in Q1 was negligible. Meanwhile railroads were being hit hard by the drop in business related to the energy sector decline. The various sectors offset each other and the transports kept their hold on 8600. That may not last.

The Nasdaq Composite finally broke above the 5000 level and held most of its gains on Friday. The high close was 5092 back on April 24th. That is +44 points above Friday's close at 5048. That 5092 level is the next decision point. If we do move higher in typical 2 steps forward, one step back fashion, it could take the entire week and that 5092 level is going to be serious resistance. With the biotechs supporting the Nasdaq rally can they power us through that level without another biowreck to drag us back down?

Actually Friday's winners were a pretty diverse lot and maybe we are not totally dependent on the biotech stocks. Unfortunately it remains to be seen if the big cap techs can maintain their momentum.

The high close on the Nasdaq 100 ($NDX) was 4536 with the intraday high of 4562. The NDX closed at 4494 on Friday and barely over prior resistance at 4475. If Apple would catch fire we could clear those barriers easy but the NDX advances have slowed. The next 50 points could be a struggle.

Lastly the Russell 2000 is also lagging. The small caps sold off in early may and have yet to resume their upward march. There is plenty of resistance at 1250 and above and it could be a real challenge heading into the summer doldrums. Without some participation from the small caps a big cap rally will not go far.

I looked at a lot of charts this weekend. Several hundred had really nice bullish bounces in progress. Unfortunately in any prolonged rally or sell off there are numerous head fakes where the market reverses course temporarily to equalize the pressures. While I don't think that is the case today there are also a lot of overextended charts. The market is really fragmented with a large number of declining charts as well. However, even though the declining charts still exist the downward momentum seemed to be slowing.

On a sentiment basis after looking at hundreds of individual charts I would have said the market was improving. However, the total of all the charts tells a different story. The percentage of S&P stocks with a buy signal on a point and figure chart has declined to 63.2%. That is nearing the low for the year at 60% and it is not painting a bullish picture for the market. Note the speed of the decline over the last several weeks. The total number of stocks with bullish charts is declining rapidly.

I would remain cautiously long until proven wrong. The beauty of a rally in a previously bearish market is the volume of stocks that see short squeezes. We know from experience that markets can turn on a dime because of that negativity being reversed. Let's hope a real rally breaks out but keep our optimism in check just in case it does not.

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Random Thoughts

China cut rates for the third time in the last 6 months and nobody blinked. China is in trouble. China's steel consumption declined -3.4% in 2014 and the first time in 30 years. Obviously steel is a major component in roads, bridges, apartment buildings, factories, business developments, etc. For consumption to decline despite China's big infrastructure announcements last year suggests the economy is fading fast.

Also, China's power output growth fell to a 16-year low in 2014 and coal output declined for the first time in more than a decade. You can't build an economy without electricity and seeing new plants shrink suggests there is not enough demand to justify a continued plant construction cycle. There are some analysts that believe China's GDP will shrink from the current +7% growth (government number) to something closer to +2.0% growth. If the world's largest economy slows that much it could be damaging to the rest of the global economy. Source

China's oil demand will grow by 3.1% in 2015 to 11.34 mbpd according to the EIA. That compares to an 11% jump in 2010 and an average growth of 5.2% over the last ten years. Source

Morgan Stanley said the worst of the Chinese slowdown is still ahead because of the nation's debt. "China, to try and sustain its growth rate in the post-financial-crisis era, has engaged in the largest credit binge of any emerging market in history." Whenever a country increases its debt to GDP sharply over five years, in the next five years there is a 70% chance of a financial crisis and 100% chance of a major economic slowdown. Morgan Stanley is projecting 4-5% GDP growth over the next five years and about half the rate of the last five years. Source

Macy's reported earnings last week that were weaker than expected. Same store sales declined -0.1%. Officially the company blamed the weather and increased competition. However, comments from the CEO were more disturbing. He said the consumer has not bounced back from the financial crisis. Despite recent gains in employment consumers don't have the spending power they used to.

Every group surveyed by the Federal Reserve had lower income in 2013 than they did in 2007. The CFO said consumers were spending money on electronics and online subscriptions rather than apparel. Consumers are buying other things like broadband cable services, Netflix subscriptions and high dollar cell phones and service plans. "Consumers today have priorities other than clothing and housewares." Also, "Shoppers are spending more of their disposable dollars on categories we don't sell like cars, healthcare and home improvements." That healthcare expense is draining the disposable incomes of lower to middle income families. With Obamacare premiums higher than prior private plans and deductibles 5-10 times higher than previously the impact to the middle class is significant. Add in the penalties for not having insurance and disposable income is shrinking.

The recent Consumer Confidence survey showed that consumers are the most worried about losing their jobs since 2009.

HSBC chief economist Stephen King warned the global economy faces a "titanic problem." He said the world economy is like an ocean liner without life boats. In prior recessions the central banks were able to reduce rates sharply by an average of 5 percentage points and then lift those rates when the recession was over. That can't happen this time around because none of the central banks have been able to lift rates. Rates are effectively zero and the global economy is barely growing. If another recession were to hit the central banks don't have any ammunition in the form of rate reductions because we are already at zero. This means any new recession could be even worse and last for a longer period of time.

King said there are four things that could trigger a new recession.

Worker productivity is low and wage growth will hurt corporate earnings. Households and businesses will lose confidence in the economy, the equity bubble will burst and stock prices collapse.

Nonbank financial systems like insurance companies and pension funds will increasingly not be able to meet future obligations because interest rates are too low. This will cause a huge demand for liquid assets, forcing people to rush to sell despite no matching demand and triggering a recession.

Forces beyond the control of the Fed, including the possibility for China's economy and currency to collapse. The resulting weak commodity prices could cause collapses in several emerging markets, as could the continued strength in the US dollar.

Lastly, the Fed could cause the next recession by raising interest rates too soon, repeating the mistakes of the ECB in 2011 and the Bank of Japan in 2000.


Forecasting firm Macroeconomic Advisors now estimates that the US economy contracted -0.9% in Q1. Factoring in the Q1 numbers and 2015 estimates a survey of 79 economists conducted by Bloomberg now expect 2015 Q4 GDP to grow only 2.3% and well below the 3%+ estimates from just a couple months ago. At the beginning of April estimates had already declined to 2.7% growth. The Fed has already lowered their midpoint of growth to 2.5% and will probably cut estimates again at the June FOMC meeting. With economic reports still declining in May they will be forced to lower their forecasts. However, that may not deter them from continuing to press for rate hikes in the near future. Damn the torpedoes, full speed ahead! Source

The third year in a presidential election cycle is normally bullish for the markets. However, the S&P is lagging its historical norms by about 7.5% despite making a new high last week. Analysts believe the sluggish market is related to better than average performance in 2013 and 2014. Jeffery Hirsch believes the direction the market takes out of the last three months of consolidation will likely be the direction that continues through summer and early fall. Let's hope that direction is higher. Source

Since 1833 there have been 45 complete 4-year cycles. Over those 180 years the Dow had an average gain of 10.4% in the third year with an average gain of +5.8% in election years. The market has not had a loss in a pre-election year since 1939. Since the markets have been up six consecutive years since the 2009 lows the odds for a strong gain in 2015 are weaker. Source

The FDA wakes up. The FDA has finally warned farmers not to use antibiotics to fatten up farm animals. More than 80% of all antibiotics in the US are used on farm animals but not because they are sick. Farmers found out years ago that animals grew larger if they were on antibiotics. Pigs consuming a specific antibiotic grew significantly larger and provided the farmer with a 4:1 return on their investment.

Unfortunately this high rate of use is creating antibiotic resistant diseases in humans. You see we get those farm antibiotics from the meat we eat but in a low dose form that allows bacteria to grow drug resistant. This is why doctors are having an increasingly hard time treating humans because the bacteria humans are exposed to have become immune to commonly used antibiotics.

There is only one way for humans to lower their antibiotic resistance and that is to quit eating meat. Once you quit consuming large amounts of antibiotics in your food the bugs will lose their resistance.


With the Q1 earnings cycle nearly over we can recap the results. As of Monday roughly 2,400 companies had reported their Q1 numbers. Of those 60.2% beat on earnings, 9.4% reported in line with estimates and 30.3% missed estimates. The S&P companies reported an average earnings growth rate of about +2.9%, which was pretty good since there were estimates for as much as a -7% decline just as the reporting cycle began. The energy sector performed better than expected and helped lift the earnings back into positive territory. Source

Hackers have figured out how to steal money from Starbucks customers by hacking into their Starbucks mobile application. The Starbucks app can allow you to pay at checkout with your phone or reload your gift cards automatically from your bank account, credit card of PayPal. Thieves have figured out how to hack into a victim's Starbucks account online, add a new gift card, transfer funds to that new card and repeat the process every time the original card is reloaded.

One customer in Texas had just paid with his phone app and was driving away when his phone chirped with a barrage of alerts. PayPal notified him that is Starbucks card was being automatically reloaded with $50. Then a Starbucks email appeared saying, "Your eGift just made someone's day." Then he got 10 more notifications just like that over the next five minutes.

Starbucks initially denied the app was hacked and told him to dispute the charges to Paypal if he thought they were bogus. It took the customer two weeks to get his $550 back. Starbucks continues to claim that it was not the app that was hacked but the customer account and blamed "weak" passwords and suggested all customers upgrade to "strong" passwords. In 2014 Starbucks had problems with user passwords because they were being stored in plain text and not encrypted. Starbucks rushed a software update to fix that problem. Source

Got eggs? If you don't have any today you better get some soon. The current bird flu epidemic has dramatically slowed egg production, which runs about 1 billion a year in normal times. More than 33.5 million chickens, turkeys and other birds have been infected and are being slaughtered. Iowa, the top egg producer in the US, lost 40% of its egg laying hens. Iowa alone lost more than 23 million hens. So far about 23% of egg capacity has been destroyed and it could take 18-24 months to return. Egg prices are already higher than the five-year average for May.

Walmart is taking on Amazon this summer. The company is starting a $50 membership program that will offer free shipping on items purchased from the website and delivery in three days. Walmart offers more than 7 million products on its website. The initial startup of the Walmart service will be by invitation only. Once they get the kinks worked out they will open it up to everyone.

Meanwhile Amazon is experimenting with using its own delivery service and bypassing UPS and FedEx. Amazon spends about $6 billion a year on shipping fees so they have a lot to gain by starting their own service. The test of this service is currently taking place in San Francisco, Los Angeles and New York. By using its own service Amazon has the capability of same day delivery, which would be a huge and next day delivery would be automatic for Prime customers.

Google is rolling out 25 of its self driving cars on public roads in northern California this summer. When they begin appearing in public they will not exceed 25 miles per hour and they will be equipped with a removable steering wheel and brakes to comply with California law. Once they have proved themselves those items will be removed. Google vehicles have been involved in three accidents since September. Overall there have been 11 accidents during the 1.7 million miles of testing since 2009. Seven of those came from other cars hitting the Google cars from behind so they don't really count. Two were sideswipes on the freeway and one was due to a test driver using the manual controls at the time.

Chinese hackers forced Penn State to unplug engineering computers from the Internet. Penn State develops sensitive technology for the U.S. Navy. The school disclosed on Friday that hackers had been sifting through its sensitive data for more than two years. Since Penn State is one of the country's largest and most productive research universities their files are a treasure trove of technology. The long term breach suggests hackers could also be doing the same thing to other universities with commercial and defense secrets.

The hackers were so deeply embedded that the computers will have to be taken offline for several days while investigators work to eject the intruders. The FBI notified the university in November and a months-long investigation revealed there were two separate groups of attackers stealing the data. The first group was linked to the Chinese government and the second has not been identified. Reportedly the Chinese government has more than 20,000 hackers working full time trying to hack any installation of value around the world. The new Chinese stealth fighter is a carbon copy of the new F-35 fighter in the US and obviously came from hacked information.

The university has notified more than 500 partners, companies, government agencies and other universities, of the breach and the possible risks that they were also infected.

Blockbuster disappeared as a result of the availability of online downloads of movies and TV content. Their demise took a decade but they are gone. Video rental stores have declined by -85% since 2000. Another business that sprang up quickly and disappeared even faster is the One-Hour-Photo store. In 1998 there were 3,066 photo stores. Today there are less than 190 (-94%) and the odds of getting your pictures in an hour are almost zero. One store in Queens New York only develops about 10 rolls of film a week. In 1993 there were more than 7,600 photo processing stores. Remember Fotomat? That company started out with 1,800 stores and was listed on the NYSE. Source

Roll film is a thing of the past. Ask Eastman Kodak about that. Film is still made but rarely sold. Today everything is digital and memory cards can hold thousands of pictures rather than having to change film every 36 shots. The photography world is a different place today than when we were kids.

In 1966 I worked at Meisel Photochrome in Dallas as a darkroom technician. I custom printed thousands of pictures from film sent in from professional photographers all over the world. At night and on the weekends I was a photographer shooting weddings and special events. Today Meisel is an EPA superfund site because of the toxic chemicals that were used in large quantities to develop millions of pictures. Things have definitely changed in the last 50 years.

Radio Shack has officially changed hands. Hedge fund Standard General completed the dismantling of the 94-year old company last week. They acquired 1,700 of the chain's 4,000 locations for $145.5 million. Last week they were the winning bidder to buy the name and intellectual property for $26.2 million. The intellectual property consists of the personal information of 67 million RadioShack customers collected over the years. Thirty-seven state attorneys general expressed concerns about how the winning bidder would use that personal information. RadioShack and Standard General have agreed to mediate with each state to resolve their concerns. Since Standard General and Sprint partnered on the buyout I would expect to get some marketing mail from Sprint if you were a RadioShack customer.


Enter passively and exit aggressively!

Jim Brown

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"While markets often make double bottoms, three pushes to a high is the most common topping pattern."

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New Plays

Percolating Higher

by James Brown

Click here to email James Brown


Starbucks Corp. - SBUX - close: 50.80 change: +0.24

Stop Loss: 48.40
Target(s): To Be Determined
Current Gain/Loss: Unopened
Entry on May -- at $---.--
Listed on May 15, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 5.8 million
New Positions: Yes, see below

Company Description

Why We Like It:
The world seems to have an insatiable appetite for coffee. Starbucks is more than happy to help fill that need. The first Starbucks opened in Seattle back in 1971. Today they are a global brand with locations in 66 countries. SBUX operates more than 21,000 retail stores with more than 300,000 workers.

A few years ago Business Insider published some facts on SBUX. The average SBUX customer stops by six times a month. The really loyal, top 20% of customers, come in 16 times a month. There are nearly 90,000 potential drink combinations at your local Starbucks. The company spends more money on healthcare for its employees than it does on coffee beans.

The company's earnings results were only mediocre most of 2014 year. You can see the results in SBUX's long-term chart below. After incredible gains in 2013 SBUX has essentially consolidated sideways in 2014. SBUX broke out of that sideways funk after it reported earnings in January 2015.

Five-Year Plan

In late 2014 SBUX announced their five-year plan to increase profitability. Here's an excerpt from a company press release:

"The seismic shift in consumer behavior underway presents tremendous opportunity for businesses the world over that are prepared and positioned to seize it," Schultz said (Howard Schultz is the Founder, Chairman, President, and CEO of Starbucks). "Over the next five years, Starbucks will continue to lean into this new era by innovating in transformational ways across coffee, tea and retail, elevating our customer and partner experiences, continuing to extend our leadership position in digital and mobile technologies, and unlocking new markets, channels and formats around the world. Investing in our coffee, our people and the communities we serve will remain at our core as we continue to redefine the role and responsibility of a public company in today's disruptive global consumer, economic and retail environments."

"Starbucks business, operations and growth trajectory around the world have never been stronger, and we are more confident than ever in our ability to continue to drive significant growth and meet our long term financial targets," said Troy Alstead, Starbucks chief operating officer. "We have more customers visiting more stores more frequently, both in the U.S. and around the world, than at any time in our history. And we expect both the number of customers visiting our stores and the amount they spend with us to accelerate in the years ahead. With a robust pipeline of mobile commerce innovations that will drive transactions and unprecedented speed of service, Starbucks is ushering in a new era of customer convenience. We believe the runway of opportunity for Starbucks inside and outside of our stores is both vast and unmatched by any other retailer on the planet."

The company believes they can grow revenues from $16 billion in FY2014 to almost $30 billion by FY2019. To do that they will expand deeper into regions like China, Japan, India, and Brazil. SBUX expects to nearly double its stores in China to over 3,000 locations in the next five years

They're also working hard on their mobile ordering technology to speed up the experience so customers don't have to wait in line so long at their busiest locations. This will also include a delivery service.

Part of the five-year plan is a new marketing campaign called Starbucks Evening experience. The company wants to be the "third place" between home and work. After 4:00 p.m. they will start offering alcohol, mainly wine and beer, in addition to new tapas-like smaller plates.

The company recently launched its first ever Starbucks Reserve Roastery and Tasting Room in Seattle, near their iconic first retail store. The new roastery is supposed to be the ultimate coffee lovers experience. CEO Schultz said they will eventually open up about 100 of these Starbucks Reserve locations.

SBUX is having a pretty good 2015 so far with the stock up +23%, outperforming the broader market. A lot of this gain was thanks to a post-earnings pops. SBUX reported its Q1 2015 results on January 22nd. Adjusted earnings, backing out one-time charges, were $0.80 a share. That's in-line with estimates. Revenues were up +13.3% to $4.8 billion, also in-line with estimates.

It was a very strong holiday period for SBUX thanks in part to astonishing gift card sales. The amount of money loaded onto SBUX gift cards during the holidays surged +17% to a record $1.6 billion. One out of every seven Americans received a SBUX gift card. The company also saw significant growth overseas with its China and Asia-Pacific business soaring +85% to sales of $495 million. Their mobile transactions have reached seven million transactions a week. Investors applauded the news in spite of the in-line results and sent SBUX soaring to new all-time highs the next day.

This earnings scenario, where SBUX delivers results in-line with estimates and rallies anyway, just happened again in late April. Of course it's worth noting that even in-line results still represent exceptional growth.

SBUX reported its Q2 (2015) on April 23rd. Earnings of $0.33 a share were in-line with estimates. Revenues were up +17.8% to $4.56 billion, slightly above expectations. It was their strongest growth in four years. Customers are responding well to new drink options and an updated food menu. They're also developing new delivery options, mobile pay options, and alcoholic drinks available at select locations.

Worldwide same-store sales grew +7%. This was significantly above estimates. It also marked the 21st consecutive quarter where SBUX's comparable store sales were +5% or more.

The company issued mixed guidance. The stronger dollar is having an impact. They see fiscal 2015 results in the $1.55-1.57 range. That compares to Wall Street estimates for $1.57 per share. However, the company's revenue estimates are more optimistic. They're forecasting +16-18% sales growth into the $19.1-19.4 billion zone compares to analysts' estimates of $19.1 billion.

SBUX popped to new highs following its results and then spent the next week consolidating lower. Investors started buying the dips again at its bullish trend of higher lows. It looks like the consolidation is over and SBUX is pushing higher. We want to hop on board. Tonight we are suggesting a trigger to open bullish positions at $51.05.

Trigger @ $51.05

- Suggested Positions -

Buy SBUX stock @ $51.05

- (or for more adventurous traders, try this option) -

Buy the JUL $50 CALL (SBUX150717C50) current ask $1.96
option price is a current quote and not a suggested entry price.

Entry disclaimer: To avoid an unfavorable entry point, we will not launch a new play if the stock gaps open more than $1.00 past our suggested entry point.

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Weekly Chart:

In Play Updates and Reviews

Stocks Drift Into The Weekend

by James Brown

Click here to email James Brown

Editor's Note:
The S&P 500 ended the week at a new closing high but momentum was missing on Friday. The major indices just drifted sideways into the weekend.

MBLY hit our entry point.

Current Portfolio:

BULLISH Play Updates

Altisource Portfolio Solutions - ASPS - close: 30.26 chg: -0.40

Stop Loss: 27.75
Target(s): To Be Determined
Current Gain/Loss: -2.7%
Entry on May 11 at $31.10
Listed on May 09, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 777 thousand
New Positions: see below

05/16/15: ASPS can't seem to reach escape velocity and remains stuck near the $30.00 level. The good news is that shares still have a bullish trend of higher lows. I am suggesting readers wait for rallies above $31.00 before considering new bullish positions.

Don't forget that this is a higher-risk, more aggressive trade.

Trade Description: May 9, 2015:
Shares of ASPS have been crushed from its highs near $170 a share back in late 2013 to almost $12 a share in March this year. That is thanks to the incestuous relationship that ASPS has with a handful of companies all founded by one man - William Erbey. One such company, Ocwen (OCN), is in danger of going out of business as authorities investigate the company on charges of misconduct. There is a risk to ASPS since a large chunk of ASPS revenues come from a relationship it has with OCN. It's not a surprise to see the slide in ASPS shares. However, the sell-off appears to be overdone and the stock may have found a bottom.

ASPS is in the services sector. According to the company, "Altisource Portfolio Solutions S.A. is a premier marketplace and transaction solutions provider for the real estate, mortgage and consumer debt industries offering both distribution and content. Altisource leverages proprietary business process, vendor and electronic payment management software and behavioral science based analytics to improve outcomes for marketplace participants. Altisource has been named to Fortune’s fastest growing global companies two years in a row."

Their most recent earnings report was April 23rd. Earnings soared +72% from a year ago to $0.56 a share even as revenues fell -1.0% to $207.8 million, which was significantly below estimates.

One of the most alluring features for traders to be short-term bullish on ASPS is the opportunity for a short squeeze. The most recent data listed short interest at 41% of the very small 9.6 million share float. That's very high and provides plenty of fuel for a short-covering fueled rally. Of course there is a risk. If OCN loses its legal battle with authorities it could go out of business and that will crush ASPS but that seems unlikely in the short-term. Meanwhile the broader market is pushing higher and poised to breakout, which could help fuel more short covering in ASPS.

The stock is pushing against resistance near $30-31. We are suggesting a trigger to launch small bullish positions at $31.10. I'm suggesting small positions to limit risk because ASPS can be volatile.

*small positions to limit risk* - Suggested Positions -

Long ASPS stock @ $31.10

- (or for more adventurous traders, try this option) -

Long JUN $30 CALL (ASPS150619C30) entry $3.00

05/11/15 triggered @ 31.10
Option Format: symbol-year-month-day-call-strike


Allegheny Technologies - ATI - close: 37.23 change: -0.22

Stop Loss: 34.75
Target(s): To Be Determined
Current Gain/Loss: +3.3%
Entry on May 11 at $36.05
Listed on May 05, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 1.0 million
New Positions: see below

05/16/15: ATI ended Friday with a minor loss but shares are up two weeks in a row and up three out of the last four weeks. ATI has been showing a lot of relative strength since the rally began in late April.

Technically the $37.50-38.00 area could be another resistance level. I am not suggesting new positions.

Trade Description: May 5, 2015:
It looks like shares of ATI have put in a bottom.

The company is in the industrial goods sector. According to ATI, "Allegheny Technologies Incorporated is one of the largest and most diversified specialty materials and components producers in the world with revenues of approximately $4.4 billion for the last twelve months. ATI has approximately 9,600 full-time employees world-wide who use innovative technologies to offer global markets a wide range of specialty materials solutions. Our major markets are aerospace and defense, oil and gas/chemical process industry, electrical energy, medical, automotive, food equipment and appliance, and construction and mining."

ATI's most recent earnings report was April 21st. Management said their Q1 2015 earnings were $0.09 a share. Depending on who you polled ATI's nine cent profit was either one cent above or one cent below analysts' estimates. Whatever the case their $0.09 profit was a big improvement from the $0.19 loss a year ago. Revenues for Q1 2015 were up +14% from a year ago to $1.13 billion, which was above analysts' estimates.

ATI saw a big improvement from their Q4 with sales up +7% sequentially. This helped drive a +25% improvement in operating profits.

ATI President and CEO Rich Harshman commented on their results, "Aerospace market sales increased 14% in the first quarter 2015 compared to the fourth quarter 2014. We saw double-digit demand growth from both jet engine and airframe customers of 14% and 22%, respectively. First quarter aerospace demand was led by organic growth of our mill products. Sales of our nickel-based alloys and specialty alloys increased 15% and sales of our titanium alloys grew 16% with a good mix of value-added mill products. We expect sales growth of our precision forgings, castings, and components to begin later this year supported by the build ramp of next-generation jet engines."

Looking ahead ATI expects demand from the oil and gas market to remain soft. However, demand from the airframe and jet engine makers should be strong throughout 2015.

The stock broke out from a consolidation pattern on its better than expected Q1 earnings. This helped generate a buy signal on the point & figure chart, which is currently forecasting at $47.00 target. Shares of ATI spent a few days struggling with technical resistance at its 200-dma but they have broken out past this level as well. The past seven months looks like a massive bottoming process for the stock. Now shares are on the verge of breaking out past key resistance in the $35-36 area. We want to use a trigger at $36.05 to launch bullish positions.

FYI: ATI's next dividend ($0.18) is this month. The ex-dividend date is May 22nd. The shareholder record date is May 27th.

- Suggested Positions -

Long ATI stock @ $36.05

- (or for more adventurous traders, try this option) -

Long JUL $37.50 CALL (ATI150717C37.50) entry $1.25

05/14/15 new stop @ 34.75
05/11/15 triggered $ 36.05
Option Format: symbol-year-month-day-call-strike


GoPro, Inc. - GPRO - close: 50.09 change: -0.53

Stop Loss: 47.45
Target(s): To Be Determined
Current Gain/Loss: -1.3%
Entry on May 14 at $50.75
Listed on May 13, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 6.5 million
New Positions: see below

05/16/15: GPRO encountered a little bit of profit taking on Friday and snapped a three-day winning streak. Shares held the $50.00 level, which is encouraging. Friday's high was $50.62. I'd use a rally past this level as a new bullish entry point. Alternatively, if you like to buy dips, then watch for support near GPRO's rising 20-dma (currently near $48.00). This moving average has been support over the past few weeks.

Trade Description: May 13, 2015:
GPRO looks like a short squeeze waiting to happen. This company is the premier brand for wearable "action" cameras.

Here's the company's rather self-confident description, "GoPro, Inc. is transforming the way consumers capture, manage, share and enjoy meaningful life experiences. We do this by enabling people to self-capture engaging, immersive photo and video content of themselves participating in their favorite activities. Our customers include some of the world's most active and passionate people. The quality and volume of their shared GoPro content, coupled with their enthusiasm for our brand, virally drives awareness and demand for our products.

What began as an idea to help athletes document themselves engaged in their sport has become a widely adopted solution for people to document themselves engaged in their interests, whatever they may be. From extreme to mainstream, professional to consumer, GoPro has enabled the world to capture and share its passions. And in doing so the world, in turn, is helping GoPro become one of the most exciting and aspirational companies of our time."

GPRO came to market with its IPO in June 2014. The stock opened for trading at $28.65 and by October 2014 shares were nearing $100 per share. That proved to be the peak. GPRO spent the next six months correcting lower and finally bottomed near $37 in March this year. Now the stock is building on a steady trend of higher lows as investors digest the company's massive growth.

GPRO reported their 2015 Q1 results on April 28th. Wall Street was expecting a profit of $0.18 per share on revenues of $341.7 million. GPRO beat estimates with a profit of $0.24 a share. Revenues were up +54% from a year ago to $363 million.

Management said it was their second highest revenue quarter in history. Their GAAP results saw gross margins improve from 40.9% in Q1 2014 to 45.1% today. Their net income attributable to common stockholders increased 98.2% compared to the first quarter of 2014. International sales surged +66% and accounted for just over half of total sales in Q1 2015. GPRO shipped 1.3 million devices in the first quarter. This was the third quarter in a row of more than one million units.

GPRO management raised their guidance. They now expect 2015 Q2 revenues in the $380-400 million range with earnings in the $0.24-0.26 region. Analysts were only forecasting $335 million with earnings at $0.16 a share.

The better than expected Q1 results and the upgraded Q2 guidance sparked several upgrades. Multiple analysts raised their price target on GPRO. New targets include: $56, $65, $66, $70, and $76.

There are plenty of bears who think GPRO is overpriced with P/E above 47 and rising competition. The biggest argument against GPRO is competition from a Chinese rival Xiaomi who has produced a competitive action camera that they're selling for less than half of GPRO's similar model. GPRO critics are worried this could kill GPRO's growth in China and the rest of Asia. It's too early to tell who will be right but momentum is currently favoring the bulls.

The most recent data listed short interest at 24% of the 55.5 million share float. That's plenty of fuel to send GPRO soaring. Right now the stock is hovering around the psychological resistance level at $50.00. We are suggesting a trigger to launch bullish positions at $50.75.

- Suggested Positions -

Long GPRO stock @ $50.75

- (or for more adventurous traders, try this option) -

Long JUL $55 CALL (GPRO150717C55) entry $2.00

05/14/15 triggered @ $50.75
Option Format: symbol-year-month-day-call-strike


Mobileye N.V. - MBLY - close: 48.48 change: +0.58

Stop Loss: 44.95
Target(s): To Be Determined
Current Gain/Loss: +0.3%
Entry on May 15 at $48.65
Listed on May 14, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 3.2 million
New Positions: see below

05/16/15: Our brand new play on MBLY is open. Shares gapped lower on Friday morning at $47.26. Fortunately the weakness didn't last long and MBLY quickly rebounded. The stock had broken out to new 2015 highs before lunchtime and hit our entry trigger at $48.65. I would consider new positions at current levels.

Trade Description: May 14, 2015:
The future of hands free driving is a lot closer tha you might think. MBLY is leading the charge. Its technology is already in more than three million cars made by companies like BMW, General Motors, and Tesla.

What exactly does this technology due? DAS stands for driver assistance systems. Sometimes you might see it called ADAS for advanced driver assistance systems. This new technology helps drivers avoid collisions with other vehicles, pedestrians, bicyclists, and more while also alerting the driver to road signs and traffic lights.

The company website describes Mobileye as "a technological leader in the area of software algorithms, system-on-chips and customer applications that are based on processing visual information for the market of driver assistance systems (DAS). Mobileye's technology keeps passengers safer on the roads, reduces the risks of traffic accidents, saves lives and has the potential to revolutionize the driving experience by enabling autonomous driving."

MBLY said their technology will be available in 160 car models from 18 car manufacturers (OEMs). Further, Mobileye's technology has been selected for implementation in serial production of 237 car models from 20 OEMs by 2016.

The company is already developing a system for autonomous driving or hands free driving. They currently plan to launch an autonomous system in 2016 that will work at highway speeds and in congested traffic situations.

MBLY stock came to market in August 2014. Demand was strong enough that they upped the number of shares available from around 27 million to 35.6 million shares. They raised the IPO price from the $22 range to $25. This valued MBLY at $5.3 billion. The first day of trading saw MBLY opened at $36.00. Two months later MBLY traded at $60.00.

The IPO excitement has faded but MBLY's valuation has grown. There are now 216.6 million shares outstanding and the company's market cap is now more than $10 billion.

It's easy to see why investors are optimistic on MBLY. Annual revenues have soared from $19.2 million in 2011 to $143.6 million in 2014. Their revenues last year rose +77% from 2013. Currently a poll of analysts by Thomson Reuters is forecasting sales to rise +50% in 2015 to $218.3 million. Earnings are forecasted to surge +95%.

MBLY's most recent earnings report was May 11th. They reported their Q1 results of $0.08 per share, which was a penny above estimates. Revenues were up +28% to $45.6 million, also above estimates.

Last year the New York Post recently ran an article discussing how the White House might generate a bullish tailwind for MBLY. The National Highway Traffic Safety Administration issued a research report that estimated ADAS type of technology could eliminate almost 600,000 left-turn and intersection crashes a year. They report also suggested that adding FCAM and lane departure technology on big vehicles like over the road trucks could reduce accidents with these huge vehicles by up to 25%. Following this report the White House said they would draft new rules that required this sort of tech in new vehicles.

Most of Wall Street analysts seem bullish. Industry experts forecast the camera-based ADAS market to grow +37% CAGR from 2014 to 2020. Goldman Sachs Recently upgraded the stock to a buy. They believe MBLY will see a 34% CAGR in sales through 2020 and will have 65% of the market by then. MBLY also garnered positive comments from a Morgan Stanley analyst who raised their price target to $68. They believe the street's 2015 estimates for MBLY are too low after the company delivered super strong growth in the last couple of quarters.

Technically shares of MBLY look attractive with a bullish trend of higher lows. The point & figure chart is bullish and forecasting at $69.00 target. Currently MBLY is hovering just below its late April highs in the $48.00-48.50 zone. We want to launch positions on a breakout past this region. Tonight we're suggesting a trigger at $48.65.

- Suggested Positions -

Long MBLY stock @ $48.65

- (or for more adventurous traders, try this option) -

Long JUL $50 CALL (MBLY150717C50) entry $2.10

05/15/15 triggered @ $48.65
Option Format: symbol-year-month-day-call-strike


Synchronoss Technologies - SNCR - close: 46.32 change: -0.48

Stop Loss: 43.85
Target(s): To Be Determined
Current Gain/Loss: +0.5%
Entry on May 11 at $46.10
Listed on May 09, 2015
Time Frame: Exit prior to June option expiration
Average Daily Volume = 527 thousand
New Positions: see below

05/16/15: Hmm... the bounce in SNCR has stalled at the 50-dma two days in a row. We can probably blame that on the market's lackluster performance on Friday. If shares fail there again on Monday we may have a problem. I am not suggesting new positions at this time.

Trade Description: May 9, 2015:
This trade is not for the faint of heart. Shares of SNCR have produced some rollercoaster like moves in the last six months. We want to use that volatility to our advantage.

SNCR is part of the technology sector. According to the company, "Synchronoss Technologies, Inc. (SNCR), is the mobile innovation leader that provides cloud solutions and software-based activation for connected devices across the globe. The company's proven and scalable technology solutions allow customers to connect, synchronize and activate connected devices and services that empower enterprises and consumers to live in a connected world."

Earnings and revenue growth has been impressive. SNCR has beaten Wall Street's earnings estimate the last four quarters in a row. Meanwhile sales have been growing at a strong double-digit pace. Looking at the last four quarters SNCR reported sales growth of +23.6%, +39.6%, +34.7%, and most recently +34.9%.

SNCR's 2015 Q1 report was announced on April 29th. Earnings rose +26% from a year ago. SNCR's Founder and CEO Stephen Waldis commented on his company's results, "Synchronoss delivered a strong start to 2015, highlighted by first quarter results that were at or above the high end of expectations. During the quarter, both sides of our business contributed to the strong performance, particularly our Cloud Services, which grew by 63% year-over-year. Mobile Operators around the world are capitalizing on the success of how personal cloud can drive important benefits to their valuable subscribers. We are pleased with our successful formula for helping our customers gain adoption and success with our personal cloud platform."

The stock was crushed from $52 to $44 (-15%) during the market's most recent swoon in the last several days of April. The sell-off was also a reaction to SNCR's earnings results. It looks like the sell-off was overdone and investors have started buying the stock near technical support at its rising 200-dma.

Tonight we are suggesting a trigger to launch small bullish positions at $46.10. More conservative traders may want to wait for a rally past the 10-dma instead (above 46.33). We'll try and limit our risk with a stop at $43.85. Keep in mind this is an aggressive play due to SNCR's volatility.

*small positions to limit risk* - Suggested Positions -

Long SNCR stock @ $46.10

- (or for more adventurous traders, try this option) -

Long JUN $50 CALL (SNCR150619C50) entry $0.90

05/11/15 triggered @ 46.10
Option Format: symbol-year-month-day-call-strike


Total System Services, Inc. - TSS - close: 41.40 change: +0.07

Stop Loss: 39.40
Target(s): To Be Determined
Current Gain/Loss: +0.9%
Entry on May 08 at $41.02
Listed on May 07, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 843 thousand
New Positions: see below

05/16/15: TSS didn't move much on Friday but it ended the day with a new all-time closing high. If you look at the intraday chart TSS was having some trouble with the $41.40 level.

The pattern of higher lows is encouraging. I would be tempted to open new positions on a close above $41.50 but you'll probably want to raise your stop loss.

Trade Description: May 8, 2015:
Consistently beating Wall Street's earnings estimates has driven shares of TSS to new all-time highs. The company is in the financial sector. The XLF financial ETF is down -1.2% for the year. TSS is up +19% for the year.

According to the company, "At TSYS® (TSS), we believe payments should revolve around people, not the other way around. We call this belief People-Centered Payments®. By putting people at the center of every decision we make, TSYS supports financial institutions, businesses and governments in more than 80 countries. Through NetSpend®, A TSYS Company, we empower consumers with the convenience, security, and freedom to be self-banked. TSYS offers issuer services and merchant payment acceptance for credit, debit, prepaid, healthcare and business solutions. TSYS' headquarters are located in Columbus, Ga., U.S.A., with local offices spread across the Americas, EMEA and Asia-Pacific."

This company has beaten analysts' estimates on both the top and bottom line the last four quarters in a row. Their most recent earnings report was April 28th. Earnings per share soared +41% to $0.54. That was eight cents above estimates. Revenues were up +11.7% to $662.2 million.

A few months ago (January 2015) TSS announced a new 20 million share stock buyback program to replace their old one. Last quarter they repurchased 1.45 million shares. When you include the company's dividend they paid out 73% of their available free cash flow to shareholders.

TSS' President and CEO, Mr. M. Troy Woods, commented on their recent results saying, "As a result of the great start to the year, we are revising our adjusted EPS guidance to grow between 12-14% from the previous range of 11-13%."

Shares of TSS surged to new highs on its earnings report. Since then traders have been buying the dips and the stock set a record closing high today. Tonight we're suggesting a trigger to launch bullish positions at $40.85.

FYI: TSS will hold an analyst day on May 20th.

- Suggested Positions -

Long TSS stock @ $41.02

- (or for more adventurous traders, try this option) -

Long AUG $40 CALL (TSS150821C40) entry $2.50

05/08/15 triggered on gap open at $41.02, suggested entry was $40.85
Option Format: symbol-year-month-day-call-strike


BEARISH Play Updates

Emerge Energy Services - EMES - close: 37.97 change: +1.38

Stop Loss: 40.35
Target(s): To Be Determined
Current Gain/Loss: -0.8%
Entry on May 07 at $37.65
Listed on May 06, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 413 thousand
New Positions: see below

05/16/15: Watch out! Shares of EMES were in rally mode almost all day long on Friday. Shares outperformed the market with a +3.7% gain. The stock has closed above its simple 10-dma for the first time in days.

More conservative traders may want to abandon ship now. We suspect that the $40.00 level is still overhead resistance so we're not giving up yet. However, we will move the stop loss down to $40.35.

I am not suggesting new positions at this time.

Trade Description: May 6, 2015:
The bubble in fracking sand and proppant stocks popped in 2014. The top in the fracking sand producers was just a couple of months after crude oil peaked last year. The impact of crude oil's decline and the industry's reaction to the oversupply-pricing issue will still be felt for months to come. Just as the oil and gas producers are cutting expenses, mothballing rigs, and delaying new projects, the proppant companies are forced to do the same. EMES recently announced they were canceling plans to build a new silica sand processing facility.

EMES is in the basic materials sector. They're part of the oil services industry. According to the company, "Emerge Energy Services LP (EMES) is a growth-oriented limited partnership engaged in the businesses of mining, producing, and distributing silica sand, a key input for the hydraulic fracturing of oil and natural gas wells. Emerge Energy also processes transmix, distributes refined motor fuels, operates bulk motor fuel storage terminals, and provides complementary fuel services. Emerge Energy operates its sand segment through its subsidiary Superior Silica Sands LLC and its fuel segment through its subsidiaries Direct Fuels LLC and Allied Energy Company LLC."

The earnings picture has been damaged by a very rough pricing environment for EMES' sand. Their Q4 2014 earnings, announced on March 2nd, were $1.01 per share. That was 12 cents below expectations. Q4 revenues were down -1.4% to $242.6 million compared to analysts' estimates of $301 million. That's a huge revenue miss.

The weakness continued in the first quarter. Wall Street was expecting EMES to report Q1 2015 earnings of $0.83 a share on revenues of $264 million. The company only delivered $0.39 per share with revenues down -25.5% to $204 million. The rest of 2015 is expected to remain challenging.

The stock was hammered again on April 24th when EMES management reduced their dividend from $1.41 per share down to $1.00.

The $40.00 level has been support and now shares are breaking down. The most recent data listed short interest at 13% of the very small 14.6 million share float. This time the shorts are probably right but the high short interest could make this a volatile trade. EMES' recent attempt at a bounce has been failing. We want to catch the next leg lower. Tonight we are suggesting a trigger to launch bearish positions at $37.65.

- Suggested Positions -

Short EMES stock @ $37.65

- (or for more adventurous traders, try this option) -

Long JUN $35 PUT (EMES150619P35) entry $2.35

05/16/15 new stop @ $40.35
05/07/15 triggered @ 37.65
Option Format: symbol-year-month-day-call-strike